verifone q2 earnings presentation

June 7,2016

Q2 FY16 Financial Results

Forward-looking statementsToday’s discussion may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements relate to future events and expectations and involve known and unknown risks and uncertainties. Verifone’s actual results or actions may differ materially from those projected in the forward-looking statements. For a summary of the specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to Verifone’sfilings with the Securities and Exchange Commission, including its annual report on Form 10-K and quarterly reports on Form 10- Q. Verifone is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise

Non-Gaap Financial Measures With respect to any non-GAAP financial measures presented in the information, reconciliations of non-GAAP to GAAP financial measures may be found in Verifone’s quarterly earnings release as filed with the Securities and Exchange Commission as well as the Appendix to these slides. Management uses non-GAAP financial measures only in addition to and in conjunction with results presented in accordance with GAAP. Management believes that these Non-GAAP financial measures help it to evaluate Verifone’s performance and to compare Verifone’s current results with those for prior periods as well as with the results of peer companies. These non-GAAP financial measures contain limitations and should be considered as a supplement to, and not as a substitute for, or superior to, disclosures made in accordance with GAAP

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Q2 FY16 Business UpdatePaul Galant, CEO

Q2 FY16 Financial UpdateMarc Rothman, CFO

Q & A

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Challenging Market Conditions

While we exceeded our revenue expectations for Q2 16, the challenging market dynamics had an impact on our Q2 16 results leading to

mitigating actions and guidance revision for Q3 16 and full year FY16

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Strategic review of our product lines & operating

expense levels

Restructuring businesses that are less

core to our strategy

Headcount reduction expected to result in savings beginning in Q4 16 and

approximately $30m in 2017

Mitigating Actions

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$532m9% Growth YoY

10% Organic Constant Currency Growth

Significant growth in the attach rates of our Services in US multilane business

Record revenue quarter in our North America Petrol business

Market share gains in several important markets, including France

Announced two next generation products: Verifone Carbon & Commerce Platform

Record Revenues*6

* Non-GAAP

47cEarnings per share*

7% Growth YoY

Competitive pricing pressure and sliding economic conditions in some Latin American and Asia emerging markets

EMV bottleneck impact: 1. Verifone deploying more resources 2. Beginning to take a temporary toll

on sales and deployment of devices and attached services

Media sales were significantly slower in Q2 16

We continue to invest 10% of our revenue on R&D to support our clients and next generation products and services

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* Non-GAAP

Verifone CarbonPowerful and beautifully

designed integrated point of sale to move beyond payment

processing, projected to be in the hands of client by end of 2016

Verifone Engage SeriesBy the latter half of 2016, we will begin to deliver Engage

series into key markets

Verifone eSeriese355 is certified in 4 of our Top

25 markets. Recently introduced new low-cost mPOS solutions in several European markets. New low cost mPOS in Latin America

before the end of the year

Systems 8

Services 9

Device services

Payment and Security services

Commerce services

Omni-commerce services

Leasing

Estate management

Repair and field services

Call centre support

Gateways

Secure Commerce Architecture

Encryption and Tokenization

Professional services

App Marketplace –Pay with Points, 3rd

party apps

Value Added Services – Card linked offers, Targeted advertising

Connecting physical, mobile and e-commerce sales channels touching both payments and commerce

Non-GAAP Financial ResultsQ2 16

$ in million, except EPSQ2 15 Q1 16 Q2 16 % SEQ % YoY

Net Revenues 490 514 532 4% 9%

Gross Margin 210 220 226 3% 8%

% of Revenue 42.8% 42.8% 42.4% (0.4)pts (0.4)pts

Operating Income 69 72 72 0% 4%

% of Revenue 14.1% 14.1% 13.6% (0.5)pts (0.5)pts

Net Income* 51 54 52 (4)% 2%

EPS 0.44 0.48 0.47 (2)% 7%

Operating Cash Flow* 56 63 51 (19)% (9)%

Free Cash Flow* 27 33 23 (29)% (14)%

* Net Income = Net Income attributable to VeriFone Systems, Inc. stockholders* Operating Cash Flow = GAAP net cash provided by operating activities

* Reconciliation of our GAAP to Non-GAAP financial results can be found in the appendix section

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Non-GAAP Revenue & Gross Margin*Business Units

$ in millionQ2 15 Q1 16 Q2 16

Systems 324 338 342

Services 166 176 190

Total Net Revenue 490 514 532

Services, % of Net Revenue 34% 34% 36%

As a % of RevenueQ2 15 Q1 16 Q2 16

Systems 43.1% 43.4% 42.3%

Services 42.1% 41.8% 42.7%

Gross Margin % 42.8% 42.8% 42.4%

* A reconciliation of our GAAP to Non-GAAP financial results can be found in the appendix section

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$46m9%

Non-GAAP Operating Expenses*

$50m10%

$52m10%

$51m11%

$52m10%

$54m10%

$43m9%

$46m9%

$48m9%

$140m 28.6%

$148m 28.8%

$154m 28.9%

R&D Sales & Marketing General Administrative

Q2 15 Q1 16 Q2 16


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Non-GAAP Revenue*Geography

$ in millionQ216

Q215 Q116 Q216 % SEQInc(Dec)

% YoYInc(Dec)

Organic YoY Growth

Organic YoYConstantCurrencyGrowth

North America% of Revenue

19339%

23646%

21541% (9)% 12% 8% 8%

Latin America% of Revenue

6814%

5511%

7013% 27% 3% 3% 26%

EMEA% of Revenue

18037%

17033%

19737% 16% 10% 3% 6%

Asia% of Revenue

5010%

5310%

509% (5)% 1% 1% 8%

TOTAL 490 514 532 4% 9% 4% 10%


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Cash & Debt*

230264 250 241 234 242

209 186157

Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 Q216

940 924 883 863 843 814 799933 955

Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 Q216

710660 633 622 609 572 590

747 798

Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 Q216

Total Cash, $ in million Gross Debt, $ in million

Net Debt, $ in millionDebt StatisticsAs of April 30, 2016

Short TermLong TermOutstanding

$55m$899m$955m

Credit Ratings

S&PMoody’s

BBBa2

* Debt issuance costs are reflected as a reduction of gross debt due to newly issued accounting principles

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Balance Sheet & Working Capital Metrics

$ in million Q215 Q116 Q216

$ Days $ Days $ Days

Accounts Receivables, net 328 60 356 62 397 67

Inventories 129 43 137 41 155 43

Accounts Payable 171 55 185 57 217 64

Cash Conversion Cycle 48 46 46

Accounts Receivable Days is calculated as Accounts Receivable, net divided by Non-GAAP Total Net Revenues multiplied by 90 daysInventory Days is calculated as Average Inventory divided by Non-GAAP Total Cost of Net Revenues multiplied by 90 days

Accounts Payable Days is calculated as Accounts Payable divided by Non-GAAP Total Cost of Net Revenues multiplied by 90 daysCash Conversion Cycle is calculated as Accounts Receivable Days plus Inventory Days less Accounts Payable Days

A reconciliation of our GAAP to Non-GAAP financial results can be found in the appendix section

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Cash Flow*

57 5952

4156

7181

63

Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 Q216

51

36 3829

22 27

4252

3323

Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 Q216

Operating cash flow, $ in million

Free cash flow, $ in million

$51mOperating cash flow

$23mFree cash flow

$28mCapEx

* Operating Cash Flow = GAAP net cash provided by operating activities. Free Cash Flow is a non-GAAP financial measureA reconciliation of our GAAP to Non-GAAP financial results can be found in the appendix section

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Guidance*

Non-GAAP Net Revenues

Non-GAAP EPS

Non-GAAP Effective Tax Rate

Non-GAAP Fully Diluted Shares

Non-GAAP Operating Margin

Free Cash Flow

Capital expenditure

$515m

40c

14.5%

~111m

12.2%

$2.1b

$1.85

14.5%

~111m

13.6%

$110m - $120m

$105m

Q3 16 Full Year FY16


▷ Organic growth of 1% on a reported basis

▷ Organic growth of 5% on constant currency basis

▷ Total growth of 9% on a constant currency basis, including acquisitions

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Q & A

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Appendix

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Reconciliation of GAAP to Non-GAAP Key Metrics Q216

(In millions, except per share data and percentages)

Note

Net revenues Gross margin Gross margin percentage

Operating income

Income tax provision

Net income attributable to

VeriFone Systems, Inc. stockholders

Three Months Ended April 30, 2016GAAP $ 526.3 $ 210.4 40.0% $ 19.8 $ 3.1 $ 2.9Adjustments:Amortization of step-down deferred services net revenues and associated costs of goods sold at acquisition A 6.1 4.4 4.4 — 4.4Amortization of purchased intangible assets D — 3.8 25.8 — 25.8Other merger and acquisition related expenses D — — 1.6 — 2.9Stock based compensation E — 0.8 11.6 — 11.6Restructuring charges F — — 0.6 — 0.6Other charges and income F — 6.6 8.4 — 9.5Income tax effect of non-GAAP exclusions G — — — 5.8 (5.8)

Non-GAAP $ 532.4 $ 226.0 42.4% $ 72.2 $ 8.9 $ 51.9

Weighted average number of shares used in computing net

income per share:

Net income per share attributable to VeriFone Systems,

Inc. stockholders (1)Basic Diluted Basic Diluted

GAAP 110.3 111.3 $ 0.03 $ 0.03Non-GAAP 110.3 111.3 $ 0.47 $ 0.47

(1) Net income per share is calculated by dividing the Net income attributable to VeriFone Systems, Inc. stockholders by the Weighted average number of shares.

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Note


Operating income

Income tax provision



Three Months Ended January 31, 2016GAAP $ 513.5 $ 215.3 41.9% $ 36.2 $ 2.0 $ 23.5Adjustments:Amortization of step-down in deferred services net revenues at acquisition A 0.1 0.1 0.1 — 0.1Amortization of purchased intangible assets D — 3.9 23.5 — 23.5Other merger and acquisition related expenses D — — 2.0 — 0.9Stock based compensation E — 0.8 10.5 — 10.5Restructuring charges F — (0.1) (0.1) — (0.1)Other charges and income F — — — — 2.5Income tax effect of non-GAAP exclusions G — — — 7.2 (7.2)

Non-GAAP $ 513.6 $ 220.0 42.8% $ 72.2 $ 9.2 $ 53.7


income per share:

Net income per share attributable to VeriFone Systems, Inc.

stockholders (1)Basic Diluted Basic Diluted

GAAP 111.3 112.4 $ 0.21 $ 0.21Non-GAAP 111.3 112.4 $ 0.48 $ 0.48


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Note


Operating income

Income tax provision (benefit)



Three Months Ended April 30, 2015

GAAP $ 490.1 $ 203.9 41.6% $ 29.7 $ 1.4 $ 17.6Adjustments:

Amortization of step-down in deferred services net revenues at acquisition A 0.2 0.2 0.2 — 0.2Amortization of purchased intangible assets D — 4.6 25.2 — 25.2Other merger and acquisition related expenses D — 0.4 0.5 — 1.5Stock based compensation E — 0.4 8.9 — 8.9

Restructuring charges F — — 0.2 — 0.2

Other charges and income F — 0.2 4.6 — 4.6Income tax effect of non-GAAP exclusions G — — — 7.3 (7.3)

Non-GAAP $ 490.3 $ 209.7 42.8% $ 69.3 $ 8.7 $ 50.9


income per share:

Net income per share attributable to VeriFone Systems, Inc.

stockholders (1)

Basic Diluted Basic DilutedGAAP 113.9 115.9 $ 0.15 $ 0.15

Non-GAAP 113.9 115.9 $ 0.45 $ 0.44


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Reconciliation of GAAP to Non-GAAP Gross Margin(In millions, except percentages)

Note

Systems net revenues

Services net revenues

Total net revenues

Total cost of net revenues

Systems gross margin

Services gross margin

Total gross margin

Three Months Ended April 30, 2016GAAP $ 342.5 $ 183.8 $ 526.3 $ 315.9 $ 142.0 $ 68.4 $ 210.4Amortization of step-down deferred services net revenues and associated costs of goods sold at acquisition A — 6.1 6.1 1.7 — 4.4 4.4Merger, acquisition and restructure related D,F — — — (3.8) 2.2 1.6 3.8Stock based compensation E — — — (0.8) 0.5 0.3 0.8Other charges and income F — — — (6.6) 0.3 6.3 6.6

Non-GAAP $ 342.5 $ 189.9 $ 532.4 $ 306.4 $ 145.0 $ 81.0 $ 226.0Percentage of Non-GAAP net revenues 64.3% 35.7% 57.6% 42.3% 42.7% 42.4%

Three Months Ended January 31, 2016GAAP $ 337.6 $ 175.9 $ 513.5 $ 298.2 $ 142.8 $ 72.5 $ 215.3Amortization of step-down in deferred services net revenues at acquisition A — 0.1 0.1 — — 0.1 0.1Merger, acquisition and restructure related D,F — — — (3.9) 3.1 0.7 3.8

Stock based compensation E — — — (0.8) 0.5 0.3 0.8Other charges and income F — — — — — — —


Three Months Ended April 30, 2015GAAP $ 324.3 $ 165.8 $ 490.1 $ 286.2 $ 135.3 $ 68.6 $ 203.9Amortization of step-down in deferred services net revenues at acquisition A — 0.2 0.2 — — 0.2 0.2Merger, acquisition and restructure related D,F — — — (5.0) 4.2 0.8 5.0Stock based compensation E — — — (0.4) 0.3 0.1 0.4Other charges and income F — — — (0.2) — 0.2 0.2


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Reconciliation of GAAP to Non-GAAP Operating Expenses

(In millions, except percentages)Note

Research and development

Sales and marketing

General and administrative Total


GAAP $ 54.7 $ 59.0 $ 54.9 $ 168.6Merger, acquisition and restructure related D,F (0.6) — (1.6) (2.2)Stock based compensation E (1.9) (3.8) (5.0) (10.7)

Other charges and income F (0.3) (0.8) (0.8) (1.9)

Non-GAAP $ 51.9 $ 54.4 $ 47.5 $ 153.8

As a percentage of total Non-GAAP net revenues 10% 10% 9% 29%

Three Months Ended January 31, 2016

GAAP $ 51.7 $ 55.0 $ 52.8 $ 159.5

Merger, acquisition and restructure related D,F (0.1) 0.5 (2.4) (2.0)

Stock based compensation E (1.9) (3.3) (4.5) (9.7)

Other charges and income F — — — —

Non-GAAP $ 49.7 $ 52.2 $ 45.9 $ 147.8



GAAP $ 47.6 $ 55.3 $ 49.5 $ 152.4

Merger, acquisition and restructure related D,F — (0.1) (0.2) (0.3)

Stock based compensation E (1.2) (3.5) (3.8) (8.5)

Other charges and income F (0.1) (0.3) (2.9) (3.3)

Non-GAAP $ 46.3 $ 51.4 $ 42.6 $ 140.3


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Reconciliation of GAAP to Non-GAAP Net Revenues

$ in millions GAAP net revenues

Amortization of step-down in

deferred revenue at acquisition

Non-GAAP net revenues

Net revenues from businesses acquired in the past 12 months

Non-GAAP organic net

revenues

Constant currency

adjustment

Non-GAAP net revenues at

constant currency

Note (A) (A) (B) (B) (C) (C)

Three Months Ended April 30, 2016North America $ 209.3 $ 6.1 $ 215.4 $ (7.7) $ 207.7 $ 0.2 $ 207.9Latin America 69.8 — 69.8 — 69.8 16.3 86.1EMEA 197.0 — 197.0 (12.7) 184.3 6.2 190.5Asia-Pacific 50.2 — 50.2 — 50.2 3.5 53.7

Total $ 526.3 $ 6.1 $ 532.4 $ (20.4) $ 512.0 $ 26.2 $ 538.2

Total with acquisitions $ 526.3 $ 6.1 $ 532.4 n/a n/a $ 26.3 $ 558.7

Three Months Ended January 31, 2016North America $ 235.7 $ — $ 235.7 $ (0.9) $ 234.8Latin America 54.8 — 54.8 — 54.8EMEA 170.3 0.1 170.4 (4.3) 166.1Asia-Pacific 52.7 — 52.7 — 52.7

Total $ 513.5 $ 0.1 $ 513.6 $ (5.2) $ 508.4

Three Months Ended April 30, 2015North America $ 193.0 $ — $ 193.0 $ — $ 193.0Latin America 68.1 — 68.1 — 68.1EMEA 179.4 0.2 179.6 (0.2) 179.4Asia-Pacific 49.6 — 49.6 — 49.6

Total $ 490.1 $ 0.2 $ 490.3 $ (0.2) $ 490.1

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Reconciliation of operating cash flow to free cash flow

Three Months Ended

$ in millions NoteApril 30,

2016January 31,

2016October 31,

2015July 31,

2015

Free Cash FlowGAAP net cash provided by operating activities H $ 50.9 $ 63.2 $ 80.5 $ 71.4Less: GAAP capital expenditures H (27.8) (30.6) (28.0) (29.6)Free cash flow H $ 23.1 $ 32.6 $ 52.5 $ 41.8

Three Months EndedApril 30,

2015January 31,

2015October 31,

2014July 31,

2014Free Cash FlowGAAP net cash provided by operating activities H $ 56.3 $ 41.1 $ 51.6 $ 58.9Less: GAAP capital expenditures H (29.3) (19.6) (22.2) (20.9)Free cash flow H $ 27.0 $ 21.5 $ 29.4 $ 38.0

Three Months EndedApril 30,

2014January 31,

2014October 31,

2013July 31,

2013Free Cash FlowGAAP net cash provided by operating activities H $ 56.5 $ 31.9 $ 54.9 $ 49.0Less: GAAP capital expenditures H (21.0) (20.9) (17.2) (18.1)Free cash flow H $ 35.5 $ 11.0 $ 37.7 $ 30.9

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Explanatory Notes to reconciliations of GAAP to non-GAAP items

Note A: Non-GAAP net revenues, costs of goods sold and gross margin. Non-GAAP net revenues exclude the fair value decrease (step-down) in deferred revenue at acquisition. Non-GAAP costs of goods sold exclude the costs of goods associated with the fair value decrease (step-down) in deferred revenue at acquisition. Although the step-down of deferred revenue fair value at acquisition and associated costs of goods sold are reflected in our GAAP financial statements, they result in net revenues and gross margins immediately post-acquisition that are lower than net revenues and gross margins that would be recognized in accordance with GAAP on those same services if they were sold under contracts entered into post-acquisition. We adjust the step-down to achieve comparability to net revenues and gross margins of the acquired entity earned pre-acquisition and to our GAAP net revenues and gross margins to be earned on contracts sold in future periods. These non-GAAP net revenues, costs of goods sold and gross margin amounts are not intended to be a substitute for our GAAP disclosures of net revenues, costs of goods sold and gross margin, and should be read together with our GAAP disclosures

Note B: Non-GAAP organic net revenues. "Non-GAAP organic net revenues" is a non-GAAP financial measure of net revenues excluding "net revenues from businesses acquired in the past 12 months" (as defined below). Verifone determines non-GAAP organic net revenues by deducting net revenues from businesses acquired in the past 12 months from non-GAAP net revenues. This non-GAAP measure is used to evaluate Verifone net revenues without the impact of net revenues from acquired businesses, as Verifone analyzes performance both with and without the impact of our recent acquisitions

Net revenues from businesses acquired in the past 12 months consists of net revenues derived from the sales channels of acquired resellers and distributors, and net revenues from Systems and Services attributable to businesses acquired in the 12 months preceding the respective financial quarter(s). For acquisitions of small businesses that are integrated within a relatively short time after the close of the acquisition, we assume quarterly net revenues attributable to such acquired businesses during the 12 months following acquisition remain at the same level as in the first full quarter after the acquisition closed. During periods prior to our acquisition of former customers, net revenues from businesses acquired in the past 12 months consists of sales by Verifone to that former customer for that period

Note C: Non-GAAP net revenues at constant currency. Verifone determines non-GAAP net revenues at constant currency by recomputing non-GAAP net revenues denominated in currencies other than U.S. Dollars in the current fiscal period using average exchange rates for that particular currency during the corresponding financial period of the prior year. Verifone uses this non-GAAP measure to evaluate performance on a comparable basis excluding the impact of foreign currency fluctuations

Note D: Merger and Acquisition Related. Verifone adjusts certain revenues and expenses for items that are the result of merger and acquisitions. Acquisition related adjustments include the amortization of intangible assets, fixed asset fair value adjustments, contingent consideration adjustments, incremental costs associated with acquisitions, acquisition integration expenses and changes in estimate on contingencies that existed at the time of acquisition

Note E: Stock-Based Compensation. Our non-GAAP financial measures eliminate the effect of expense for stock-based compensation

Note F: Other Charges and Income (Loss). Verifone excludes certain expenses, other income (expense) and losses that are the result of unique or unplanned events, such as certain costs incurred in connection with senior executive management changes, certain personnel and outside professional service fees incurred on initiatives to transform, streamline and centralize our global operations, restructure costs, impairment charges and losses related to certain exit activities initiated as part of our strategic review of under-performing businesses and global transformation initiatives, foreign exchange losses related to obligations denominated in currencies of highly inflationary economies, and costs associated with litigation and other loss contingencies, penalties and settlements

Note G: Income Tax Effect of Non-GAAP exclusions. Income taxes are adjusted for the tax effect of the adjusting items related to our non-GAAP financial measures and to reflect our medium to long term estimate of cash taxes on a non-GAAP basis. Under GAAP our Income tax provision as a percentage of Income before income taxes was 48.0% for the fiscal quarter ended April 30, 2016, 7.8% for the fiscal quarter ended January 31, 2016, and 7.6% for the fiscal quarter ended April 30, 2015. For non-GAAP purposes, we used a 14.5% rate for all periods presented

Note H: Free Cash Flow. Verifone determines free cash flow as net cash provided by operating activities less capital expenditures

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verifone q2 earnings presentation

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